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  1. Analysis
January 9, 2017

What does 2017 have in store for cards?

Experts from the cards sector and financial services industry review the primary talking points of 2016, the year that saw leaps in innovation, regulation, artificial intelligence and challenger brands. As thoughts turn to 2017, what will be the industry’s key growth drivers of tomorrow and beyond?

By Verdict Staff

Experts from the cards sector and financial services industry review the primary talking points of 2016, the year that saw leaps in innovation, regulation, artificial intelligence and challenger brands. As thoughts turn to 2017, what will be the industry’s key growth drivers of tomorrow and beyond?

Mike Laven, CEO, Currencycloud

Brexit will of course continue to create uncertainty and concern within the UK over the next year, as negotiations start to take shape.

The financial services industry will be preparing for a rocky road ahead, but we’ll avoid the doomsday scenarios. The reality is that uncertainty has become the new normal and financial services will continue to operate within this continued state of ambiguity – slower, but without major catastrophe.

EU benefits, such as regulatory passporting rights are not the UK’s only draw. It took decades to develop the infrastructure of firms, services, lawyers, insurers, a myriad of financial niches, and massive personnel base that makes the UK a financial services hub. The FCA and the Bank of England are, as regulators go, innovative and progressive and will help drive innovation in this space.

The Regulatory Sandbox, will help retain and attract top emerging fintech companies into the UK throughout 2017. Moreover, in his Autumn Statement, the Chancellor announced that the DIT will provide £500,000 ($620,000) a year for fintech specialists. These initiatives will play a role in safeguarding the future of our global fintech hub and ease fears from existing players.

Will it get more difficult? Of course. But with contingency plans in place in individual enterprises, we’ll come out the other end.

On an even brighter note, financial services based in the UK need not limit global expansion to Europe. The growth of the world is focused in Asia and if exiting the EU means opening more opportunities to focus on growth further afield, 2017 is already looking a lot brighter.

Regulation is an inherent aspect of banking and it’s going to get a face lift in the New Year, with the emergence of regtech – technology enterprises designed specifically to support financial services enterprises to comply with regulation.

Regtech was born from the challenge that comes with monitoring risk in a data-driven world. This is crucial in financial services – businesses in this space are guarding people’s money, and identity.

 Innovation comes when there are inefficiencies in the current system, and the rise of regtech tools is no exception. Know your customer, for example, is a critical responsibility, but how can it possibly make sense for customers to still have to scan a utility bill as part of the identification process?

However, the key thing to remember when considering regtech solutions is that while you can outsource the data and the compliance checks, you can’t outsource the attitude. For a financial services firm, compliance isn’t a tick box exercise, it’s a fundamental part of the company and for that reason, it needs to be built into every stage of the business – extending beyond the compliance team to the wider company.

 If compliance isn’t built into the DNA of the company we have a problem. We have one of the world’s most progressive financial regulatory landscapes, so it’s crucial we work with it, rather than try to battle against it.

Parth Desai, CEO and founder, Pelican

The payments landscape is changing. Currently, most financial institutions have a first -generation payments system, which is rigid and unintelligent – payment specifications must be followed precisely and deviation is rejected. However, payments systems need to be flexible, to accommodate changes, especially the move to real-time payments processing.
Artificial intelligence (AI) is already making an impact in payments, and I believe uptake will grow significantly in 2017. The first movers are already exploiting the technology in areas such as sanctions screening and payments routing. The technology promises to cut costs, increase straight-through processing rates and efficiencies.

 A recent survey we conducted shows that 72% of senior payment professionals within banks see strong potential for AI to tackle the many inefficiencies present in their payments processing activities. In addition, 67% believe that the adoption of AI technologies could improve payment efficiencies.

AI can introduce context and human-like understanding to the processes to automate payments – reducing the need for manual monitoring and freeing up resources to ensure the speedy handling of deviations.

 The payments industry still relies heavily on manual and legacy systems, and needs to adopt smarter tools to increase efficiency and drive down costs. AI in payments has the potential to revolutionise the industry.

 It can deliver unprecedented levels of accuracy, speed and efficiencies that consumers, companies and corporates now expect from their service providers.

Laurent le Moal, CEO, PayU

Although there is competition to be crowned the hub of fintech innovation among the likes of New York and London, we are starting to see an increasingly level of payments innovation coming from all parts of the globe.

In 2017 this trend will continue as more governments and entrepreneurs capitalise on the smartphone revolution and citizens' increasing access to electronic payments methods.

In 2017 we will see more payments innovation from India, Latin America and Africa. Each is home to distinct opportunities to grow electronic payment volumes. Overseas firms are facing a higher level of competition in these markets from local entrepreneurs and home grown business models.

While global opportunities abound, the key to payments firms’ success in 2017 will be an acute understanding of the local market dynamics that shape the adoption of new technologies.

Rich Bialek, CEO, Global Technology Partners

When thinking about the direction of the payments industry in 2017, here are five questions I am focusing on:

Visa Europe
How successful will Visa be in integrating Visa Europe? Now that the deal has been signed the hard work of integration must be completed.  Layoffs have started at Visa as the organisation looks to realise operational leverage from the combined businesses. In addition, the sudden departure of Charles Scharf as CEO adds a new variable to the equation.

Will Visa be able to increase prices and margins in parallel with the organisational rationalisation? Yes, but not in the near term. Will MasterCard be able to take advantage of the dislocation and disruption in Visa and gain marker share? Yes in the short term, but I’m not sure if the gains will be sustained.

PayPal, Visa and MasterCard
The agreements PayPal signed with Visa and MasterCard define a potential new path of cooperation between those parties.

Will the expected benefits be realised? Will PayPal be able to offset higher Visa and MasterCard transaction costs? Will Visa Checkout and MasterPass realise a boost in adoption rates? Will the agreement act as a template for future deals between established networks and other industry disruptors?

In 2017 we will begin to get answers to those questions. In addition, given the rate of new industry entrants, product innovation and disruptive technology Visa and MasterCard need to be ready to make more PayPal like deals in 2017 and beyond.

Consumer Financial Protection Bureau
How will this change under a Trump administration? The 2016 US Presidential and Congressional Elections produced a Republican sweep of the House and Senate.

The CFPB will find a less friendly environment to pursue an activist agenda and may find some of its prior regulatory and legal initiatives reversed including a change of oversight and budget control.

Is it safe?
A famous line from the 1970s-era movie The Marathon Man is now a daily question for the payments industry. Under increasing attacks from hackers of all types the industry stakeholders must redouble efforts to provide an end-to-end more secure payment system.

It means much more than competing the long overdue implementation of EMV chip cards in the US.

More intrusive and effective monitoring of transactions, databases and networks is required, as is a more thorough and ongoing due diligence of business partners.

Will blockchain go mainstream?
Related to the question of security is the evolution and acceptance of blockchain technology. It offers a promise of enhanced security, lower transaction costs and faster transactions. Expect blockchain to become part of most stakeholders’ strategic plans, but not to a have an impact on 2017 operations or performance.

Chris Davies, president of Europe, Global Payments

In 2016 we saw strong growth in contactless and online payments. While we expect the trend to continue into next year, several other developments will make 2017 another interesting 12 months for the payments industry.

Contactless has now moved into the mainstream, with the number of payments increasing month-on-month. In July, monthly contactless card spending passed the £2bn mark with 19% of all card payments being made using this technology.

As more people get used to services like Apple Pay and Android Pay – as well as paying for daily commutes with contactless cards – we anticipate this trend to continue.

Similarly, we have seen e-commerce continue to outpace face-to-face transactions. According to the Centre for Retail Research, online retail sales in the UK have grown from £52.25bn in 2015 to £60.04bn in 2016, a rise of almost 15%.

E-commerce is a critically important growth area, and although omni-channel payments have not evolved properly yet, we expect to see record numbers next year.

Looking to 2017, the importance of wallets and app payments will continue to rise. This is fuelled by more individuals happy to pay with their smartphones, while companies like MasterCard and Visa develop innovative wallet propositions.  

We anticipate an increased focus on reward and loyalty programmes with smartphone providers such as Samsung and Apple, together with other technology companies, currently integrating these services into their payment applications.

The next years will also bring innovation, as firms become compliant with and respond to new regulations in the payments industry.

We expect a whole new payments landscape to develop as a result of the revised Payment Services Directive (PSD2), as the banks’ monopoly on their customers’ account information and payment services disappears.

PSD2, which has to be implemented by all EU member states by January 2018, is a fundamental piece of payment-related legislation aiming to increase competition, establish new types of payment service and enhance customer protection and security. The directive will encourage the emergence of new competitors as well as the development of innovative mobile and internet payment services.

PSD2 will enable third parties to access transaction data from banks and send it back to consumers in innovative, informative and functional ways. Customers could sign into their individual Google accounts and view all relevant banking information on one platform. With this consolidated Google bank account not only could customers view all of their accounts in one place, but move their money more easily and therefore better manage their financial affairs.

The payments industry has always been highly competitive and fast-moving, and even though current trends such as contactless and mobile are expected to remain at the forefront, next year will see the pace of change and innovation quicken, driven by regulatory reforms.

Oren Levy, CEO, Zooz

I don't think I am going out on a limb when I say that 2016 was a year of surprises. First there was Brexit, the shockwaves of which are yet to be felt by the EU economy and the UK fintech industry. Then there were the US elections which could lead to changes in privacy regulations and other financial sectors. At the moment, just about the only thing that is certain is that there is no certainty.

When it comes to fintech and payments in 2016, there has been endless discussion about pending EU regulations, mobile phone payments, security breaches, big data, P2P payments, and a slew of other topics.

Nevertheless, anyone closely following the global payments industry will probably agree that there has been little innovation in this area during the last few years. The most we have seen is new enterprises that strive to emulate the highly successful Stripe or Square payment processing models.

We have not witnessed any real effort to galvanise current structures and create new payment equations due to the fact that up until recently, the existing paradigms have been capable of keeping pace with developing ecommerce payment needs.

Domestic payments were processed via the traditional back office flow via a gateway, one acquirer, a limited number of credit card issuers and banks. But today, the expansion to global markets entails far more extensive payment capabilities. It is no longer enough for a payment solution to be able to process payments via a single acquirer, optimise routing and generate data.  

Due to rapidly evolving merchant needs in growing global markets, payment solutions must be able to provide considerable added value such as machine learning, rulemaking capabilities, data transparency, the real-time adjustment of fraud screening, and actionable data analytics to discover and correct inefficiencies.

Many cross-border enterprises are discovering that legacy payment systems that did the job in the past are incapable of integrating with the necessary third-party providers to move forward.   

The fintech industry is highly innovative by nature. In the last few years we have seen the rise of digital banks and blockchain, which are shaking up traditional finance and banking methods.

We have also witnessed a shift in the types of payments being used at different locations, with P2P and alternative payment methods steadily gaining in strength. Another interesting phenomenon is the elimination of classic components of the payment flow such as desktop shopping with credit cards in bankless countries such as India and Africa, where mobile payments prevail.  

I believe that the demand to meet new challenges and the relentless search for even more frictionless payments will soon trigger new partnerships and joint undertakings among various fintech players.

Payment providers may seek to join forces with an enterprise that offers cutting-edge, real-time fraud solutions to develop a seamless user experience.

Mark Roper, commercial director, Collinson Group

In the last year, more than 700 million customer records were leaked due to data security breaches and cyberattacks. While these figures, and the cyberthreat itself, are not limited to financial services, banks are investing more, and working harder than ever to ensure they have robust systems in place to withstand the threat of these kinds of attack.

Consumers see this type of support as a service which both protects them, and also helps build trust and loyalty with the bank.

For years, financial service companies have provided add-ons to accounts and cards that protect someone’s TV when it stops working, a vase when it gets broken, or luggage when it gets lost. But when a customer’s identity gets stolen there is little protection for them in place, either to help resolve the matter quickly or to stop it happening again.

In the digital age, when more of our personal data is stored online, it is a missed opportunity not to provide identity theft protection on a card or account, or within a loyalty programme. It is certainly not due to a lack of demand.

We polled 6,125 of the top 15% of earners globally (the affluent middle class), and found that of those consumers who already subscribe to an ID protection service, only 13% purchase, or receive it from their bank. They are much more likely to go to specialist providers (22%), for this kind of product.

Banks help us protect our homes, our cars and our families as a matter of course. Now they should start helping us protect our identities, our personal data, and from fraud.  Educating customers to be more aware of the importance of online monitoring and protection, and offering supporting products, to help customers take action, will help banks to re-establish trust with their customers, drive a better digital customer experience, and build brand loyalty.

Alex Kwiatkowski, senior strategist, Misys

Buckle up for exciting times ahead in the consumer finance sector as the developments of 2016 have kick-started the need to drive innovation in the New Year.

Key initiatives shaking up the industry include the Competition and Markets Authority-backed move to open up the banking industry, the implementation of PSD2, and delivering on the vision of the EU’s General Data Protection Regulations.

With deadlines for all three looming in 2018 we can expect each to absorb attention and resources over 2017. But the potential rewards to be reaped by banks extend far beyond just achieving regulatory compliance.

Faced with these challenges the industry will see the emergence of two-speed banking. Those in the fast lane will be preparing for open standards and PSD2, collaborating with technology providers and empowering themselves with data. Banks in the slow lane, however, will be hindered by legacy technology and risk falling behind in this highly competitive market.

With the FCA giving the go ahead for cloud computing use in UK financial services earlier this year, and a groundswell of industry research pointing to its benefits, we can expect more and more banks to embrace the cloud throughout 2017.

Beyond that, a platform-as-a-service (PaaS) model which opens up core systems and brings communities together to respond to the app-driven economy will gain traction.

Those taking advantage of PaaS strategies in 2017 will ultimately be the ones leading the way, reaching new heights of competitive differentiation, and gaining access to app-driven capabilities.

Bill Sullivan, head of financial services, Capgemini

Historically the financial services industry has been a pioneer in harnessing technology for better customer service. We expect this to continue but at an increased pace in 2017.

Greater levels of digitisation, coupled with the higher penetration of smartphones, are transforming the way financial services are delivered. The adoption rate for mobile wallets and contactless transactions is expected to increase even further. An open-API approach will help firms in creating a financial ecosystem around customers.

Regulators are also playing their part to encourage open banking through regulations such as PSD2, as well as promoting innovation and compliance through new frameworks and guidelines and stress tests using sandboxes.

The industry is witnessing innovative solutions from leading banks and fintech firms in areas such as lending, payments, operations, and compliance.

Banks have been quick to collaborate with fintech firms to develop innovative, easy-to-use, and cheaper services.

While most organisations are executing digital initiatives in some form, complete transformation to digital is yet to be achieved. Organisations are looking to overcome operational inefficiencies through robotic process automation, which will also result in cost savings.

Advanced forms of automation using AI will help banks to provide relevant and personalised solutions to customers. The more intuitive properties of AI, along with new methods of authentication such as biometrics, will prove very useful in customer servicing and fraud prevention.

Richard Broadbent, general manager, Wincor Nixdorf UK and Ireland

Banks have a lot to tackle in 2017 as the regulatory and compliance bars are raised ever higher.

While this is bound to absorb a significant amount of time and budget focus, I believe 2017 will see financial institutions begin to lay the ground work for their branch transformation plans of the future by investing in new technology, trailing new services and better integrating their digital experiences in-branch.

So-called branch transformation is by no means a new concept, but many organisations are yet to fully embark on a plan for change. While branch transformation plans will take several years to execute, I do expect the industry will make significant strides with a clear focus on improving customer, staff and cash journeys.  

The competitive landscape will also continue to thrive. While this may not impact mainstream competition right away, the desire of challenger banks and fintechs to change how we think about financial services and what we should expect as consumers will definitely have far-reaching consequences.

While this may not fully play out in 2017, it will undoubtedly have a knock-on impact for self-service which will be used to streamline operations and offer enhanced services to customers. Integrating contactless will be the first of many areas of service improvement and digital enhancement.

Finally, the Bank of England has also committed to introducing the £10 polymer note in the summer of 2017. This is a significant change programme that will affect everyone within the industry – so financial institutions need to be ready for the transition.

This is just one of many innovations that we are seeing in our industry today, making it ever more important for financial institutions to listen to their customers, use the data they have at their disposal and future-proof their technology for the changes that will be an inevitable part of retail banking’s evolution.

Francesco Burelli, Accenture

The implementation of regulation in Europe next year will prompt a shift. The introduction of Payment Initiation and Account Information Service Provider roles by non-banks (PISP and AISP respectively) will see the market open. The implementation of APIs will introduce efficiency in payments infrastructure and connectivity, and will shake the competitive landscape.

Payments will evolve, but incumbent products will not disappear: They will coexist with an array of new value propositions.
New entrants will compete for customers and user preference, hoping to change consumer behaviour.

Remember – real-time payment systems are not a new thing, they have been around since the seventies. But, never before have they acquired such prominence and potential for new payment solutions.

Some may argue that payment certainty can be provided without immediate settlement or clearing, nonetheless, the roll out of real-time payment solutions will provide a base for convergence between account-based and plastic payment types.
It is likely that new blockchain solutions will keep being tested as an alternative to incumbent correspondent banking business models.

Globally, we will also see continued growth in mobile payments, particularly in developing countries where mobile provides an alternative to retail banks and a cost-effective channel for basic financial services solutions.

As activity increases, central banks and the Bank of International Settlement will turn their attention to the provision of regulation. Donor funding will also play a part to drive a relationship between financial services and telecommunications-owned infrastructure.

Finally, identity management and payments will keep overlapping. Authentication and security remain critical, particularly as payments become more digital and frictionless. It is likely that fraud will keep being a growing threat to the industry.

As financial firms digitalise to meet customer demands for mobile and multi-channel access, they must work to protect themselves from new cyberthreats from an ever-expanding and sophisticated set of cybercriminals.

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